As 2020 comes to a close, it is time for many organizations to analyze its risk management processes and how well the processes managed the risk events that has recently occurred. For many companies, Covid-19 was a catastrophic or near catastrophic event. Those companies that were prepared to handle the pandemic (such as those that had business continuity plans in place, etc.) were able to handle the risks presented by Covid 19. Those that were not prepared had a harder time. What successful companies know is that in order for a company to succeed it not only has to a sustainable business model but it has to constantly review its risk processes. After all, what happens when the current business model does not work anymore? What happens when the risks outweigh the benefits of continued standard corporate operations? So, maybe it’s time to re-examine your risk management processes. Do they really work?

When talking to your staff or to other departments, how often have you heard the phrase “That the way we have always done things.” Just because corporate processes have been done one way doesn’t mean that the best way or even in todays’ fast changing world- the right way. Even after 2008 many companies continued to use the failed metrics that got them into trouble in the first place. Even the credit markets haven’t changed as much as you would think after 2008. And of course, some companies have not changed processes during Covid. But why?
I truly believe that once processes are created in a corporate or bureaucratic environment, it is as if the processes have been set in stone. They are very hard to change. Even if the world around the company has changed. It is human nature to accept what has been done in the past. Few people want to “rock the boat” even if the proverbial boat is actually sinking. Companies get into real trouble because of this. What happens if the company’s business model is out of date or its business plan is no longer viable? Just because it worked in the past doesn’t mean it will work in the future.

I therefore caution everyone not to blindly accept the current risk management processes in place. Risk managers as well as in house counsel and other managers should be challenging risk management metrics on a regular basis. Counsel should be auditing departments on a regular basis. Does that compliance program really work? Does the business continuity plan really work? Maybe it did 5 years ago. But what about today?

What about re-examining the areas of risk management responsibility? The areas should include the purpose and policy of the RMD in the organization, the functions and execution points of the RMD (who does what, when, how, reporting lines, etc.) as well as a detailed outline of the procedures and processes of the RMD. Procedures and processes can include:

-conducting risk assessments of the organizations’ divisions and departments
-developing solutions for the various risk management issues
-developing business continuity plans
-coordination with various departments to assist with compliance issues
-oversee loss control concerns
-develop training for the organization’s employees covering various risk related areas of concern such as product safety, etc.

Remember, if local or national laws have changed maybe the current processes are out of date. If your organization was not prepared for the Covid 19 pandemic, maybe the current processes are out of date. If the products that your company manufactures or the services it provides have changed maybe the internal processes surrounding the review of those products and services are out of date. What about the current geo-political environment? When reviewing your current product liability review processes have you factored in the new risks created by the Internet of all Things? These risks are real. Are you ready for them? Does your current business model still work or is it outdated? What about data privacy laws? What about business continuity plans?

It is a fundamental truth that all things change. Of course, some things change faster than others. Regardless, don’t rely on your old or standard risk management processes to continue to provide the same level of comfort they did in the past. Continue to review and to modify them if necessary. And don’t think that just because “that the way things are done” your company should continue to operate as usual.

So if you haven’t re-examined your risk management processes- now is the time to do so.

The other day I had lunch with a friend who was lamenting the fact his company’s sales team continued to ink deals without any regard for risk. When he asked them why they continued to do so, the reply was “that’s the way we have always done things.” Unfortunately, many companies continue to plod along doing business without regards to risk. In fact, many companies fail to look at operational risk which can lead to disaster down the road. In order for a company to succeed it not only has to a sustainable business model but it has to constantly review its risk processes. After all, what happens when the current business model does not work anymore? What happens when the risks outweigh the benefits of continued standard corporate operations? Maybe it’s time to re-examine your risk management processes. Do they really work?

When talking to your staff or to other departments, how often have you heard the phrase “That the way we have always done things.” Just because corporate processes have been done one way doesn’t mean that the best way or even in todays’ fast changing world- the right way. Even after 2008 many companies continued to use the failed metrics that got them into trouble in the first place. Even the credit markets haven’t changed as much as you would think after 2008. Why?

I truly believe that once processes are created in a corporate or bureaucratic environment, it is as if the processes have been set in stone. They are very hard to change. Even if the world around the company has changed. It is human nature to accept what has been done in the past. Few people want to “rock the boat” even if the proverbial boat is actually sinking. Companies get into real trouble because of this. What happens if the company’s business model actually is out of date or its business plan is no longer viable? Just because it worked in the past doesn’t mean it will work in the future.

I therefore caution everyone not to blindly accept the current risk management processes in place. Risk managers as well as in house counsel and other managers should be challenging risk management metrics on a regular basis. Counsel should be auditing departments on a regular basis. Does that compliance program really work? Maybe it did 5 years ago. But what about today?
Remember, if local or national laws have changed maybe the current processes are out of date. If the products that your company manufactures or the services it provides have changed maybe the internal processes surrounding the review of those products and services are out of date. What about the current social environment? When reviewing your current product liability review processes have you factored in the new risks created by the Internet of all Things? These risks are real. Are you ready for them? Does your current business model still work or is it outdated? What about data privacy laws?

It is a fundamental truth that all things change. Of course, some things change faster than others. Regardless, don’t rely on your old or standard risk management processes to continue to provide the same level of comfort they did in the past. Continue to review and to modify them if necessary. And don’t think that just because “that's the way things are done” your company should continue to operate as usual.

Besides managing risk, risk managers must also have a knack for good stakeholder management. In fact, in order to provide effective leadership in today’s corporate world, risk managers and those who have a risk management function, must understand the significance of good stakeholder management. Considering the high employee and investor turnover rates it is no wonder that risk managers must take the lead in providing risk management information to various stakeholders not only from a compliance perspective but from a profit/loss perspective as well.
Who are the various stakeholders that a risk manager must concern himself or herself with? Of course the more sophisticated a company is the more stakeholders there are. Nonetheless, the main stakeholders of any company or organization usually include:

1. Employees
2. Upper Management including the Board
3. Customers
4. Suppliers
5. Regulators
6. Investors
7. Business partners; and
8. Credit Analysts

Each group of stakeholders mentioned above is important to the overall success or survival of a company. They may have a key role in determining the strategy of a company and therefore need to understand relevant risk related information in order to understand the issues facing the company. Of course, depending on the various laws and regulations facing companies, it may be there are in fact reporting requirements that should be met. The Board as well as Upper Management has risk management responsibilities when it comes to addressing risk, and in order to provide effective leadership, Management must look at Stakeholder Management as part of good Corporate Governance.

The first step for any risk manager when dealing with stakeholders is to ask the hard questions such as: (i) Are you prepared to handle risk events relating to your stakeholders? (ii) In a crisis management event, are you ready to address your customers? (iii) In case of litigation, do you have the right information to communicate to your regulators? , and (iv) What are the risk management process to use in case you have major employment related issues?

Providing effective risk management leadership requires the risk manager to understand who the major stakeholders really are and what risk management reporting processes actually exist or should exist. Once you can answer these questions, you are on your way to provide effective risk management leadership.